Generic Answers - ATR, Risk, Cashflow, Wills, Fees etc Flashcards
1
Q
Adviser charging - Fixed fee - Advantages (7)
A
- Know the exact cost of the advice
- Familiar as other professions use this type
- Free to get alternative quotes from other advisory firms
- Cheaper for larger sums
- Costs are not linked to fluctuations in the stock market
- Fair, simple and transparent
- less concern about time spent with adviser
2
Q
Adviser charging - Fixed Fees - Disadvantages (6)
A
- Fees may be excessive/disproportionate in relation to the work undertaken
- Paid from personal funds
- Clients may have difficulty in understanding the basis of fee and therefore be reluctant to pay
- May not be affordable for the client
- Does not guarantee quality of service provided
- May pay more than through other adviser charging structures
3
Q
Adviser Charging - Fund based - Advantages (6)
A
- Charges are transparent and easier to understand
- Larger investments may be able to negotiate lower fees
- Client does not need to make direct payment
- Only likely to pay fee if happy with ongoing service
- Gives adviser incentive to grow funds
- Attractive for lower amounts
4
Q
Adviser Charging - Fund based - Disadvantages (5)
A
- Fee will rise and fall with market conditions rather than amount of work done
- Extra charges may apply for other services
- Reduces investment growth
- Extreme bull and bear markets could distort rewards
- Managing portfolio for smaller and larger client holdings may have little difference but, due to the % charge, larger holdings could be charged significantly more. Tiered charging may be more appropriate here.
5
Q
Adviser charging - Time based - Advantages (5)
A
- Reflects actual amount of time spent with client and therefore seems more fair
- Clients will be familiar with this type of charging as it is associated with other professional advise
- Charges not linked to other variables such as increases and decreases in clients investment values
- Transparent and easy to understand
- fee cap can apply
6
Q
Adviser charging - Time based - Disadvantages (7)
A
- Clients can react badly to fees based on time taken to carry out a task as may see it as giving incentive for inefficiencies.
- May not be affordable
- May be subject to VAT therefore increasing overall cost
- Unknown total cost
- Paid from personal funds
- May not enjoy tax reliefs available if taken directly from product
- May be seen as unfair as client does not experience ongoing work behind the scenes
7
Q
Risk Profiling process (7)
A
- Complete questionnaire
- Confirm if joint or singular (dependant on case study)
- Questionnaire focuses on their timescales, priorities and preferences
- Input answers into computer to produce risk score
- Then discussed and agreed with client
- Risk profile then used to determine asset allocation
- Agree suitable portfolio and investments with adviser
8
Q
Risk profiling - Benefits (9)
A
- More structured process than merely having a conversation
- Requires client to think more about the risk they want to take and leads to better understanding
- Often uses charts to help illustrate points
- helps to understand risk and reward
- helps analysis on current assets
- helps identify suitable asset allocation
- Less susceptible to human error
- helps adviser identify inconsistencies
- identifies capacity for loss
9
Q
Risk profiling - Drawbacks (6)
A
- Clients may think it is more scientific than it actually is
- For joint clients, differing results may require further discussions
- Different tools may produce different results and not client specific, casting doubt over the reliability
- Client may misinterpret questions therefore screwing the results
- Won’t pick up differing risk profiles for each objective e.g. pension vs inheritance and may have to complete more than one (timeconsuming)
- Unsuitable where there is zero capacity for loss
10
Q
Cashflow analysis - What is it (8)
A
- Analyses and summarises clients income and expenditure and how they change if their circumstances change
- Provides year by year summary
- Can identify periods where net income exceeds expenditure and vice versa
- Good for when circumstances are expected to change and takes into account all types of income
- Complete a questionnaire and this is input into a computer where the data is shown in graph format and compares different scenarios based on different strategies.
- Illustrates future capital and income needs
- Good for if approaching retirement, illness occurs or wanting to make a gift and evaluating its impact on estate and/or income.
- Can demonstrate drawdown sustainability
11
Q
Cashflow analysis - Benefits (6)
A
- Helps client to see clearly income and expenditure and therefore gain a better understanding
- Helps clients to understand impact of adopting alternative planning strategies
- Helps clients to make better decisions
- Would help identify asset shortfall
- Enables client to understand long term impact of large expenditure
- Can be used to view different scenarios such as loss of income
- Highlights areas for cost reduction
12
Q
Review meetings - Generic events that trigger review meeting (6)
A
- Change to ATR
- Health problems
- Changes to legislation
- Changes to taxation
- Changes to investment conditions
- Changes to financial objectives
13
Q
Review meetings - some examples of client specific (will be based on case study) (7)
A
- Return to work quicker than expected
- Takes redundancy
- Inheritance received
- Retire early
- Completion of divorce
- Sell business
- New job - review pension, employment benefits, mortgage affordability, impact on spouse, income changes etc
14
Q
Review meetings - Generic factors considered (8) + if pensions (3)
A
- Review of investment performance
- Revisit appropriateness of asset allocation or rebalance
- Check for changes to income needs or expenditure
- Check for changes to ATR or capacity for loss
- Review changes to taxation or legislation
- Review changes to investment conditions or economy
- utilise tax allowances
- Review changes to circumstance and/or objectives
If pensions;
- Review health and annuity rates
- Review death benefits
- Review drawdown
15
Q
Outline financial advice process (10)
A
- Establish relationship & provide initial disclosures document
- Ask client to complete factfind
- Assess risk profile and capacity for loss
- Establish affordability
- Analyse and review current arrangements
- Research and formulate recommendations
- Make recommendations
- Provide suitability report
- Implement recommendations
- Review clients arrangements and circumstances at least annually
